CAPM & WACC worksheet with answers

Free printable CAPM & WACC worksheet: 6 problems from easy to exam level, with an answer key. Print it or save it as a PDF.

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Name: ____________________   Date: ____________

1.Easy
years0123…9P0​ = €41.00D1​D2​D3​…D0​ = €1.60, g = 2.5%, re​ = ?

A company has just paid a dividend of €1.60 per share. Dividends are expected to grow by 2.5% per year forever, and the share price is €41.00. Use the dividend growth model to find the cost of equity re.

D0 = €1.60g = 2.5%P0 = €41.00
re = %
2.Easy
years0123…9Pp​ = €71€5.50€5.50€5.50…rp​ = ?

A company's preferred shares pay a fixed dividend of €5.50 per year and trade at €71. The tax rate is 25.8%. Find the cost of preferred stock rp.

Dp = €5.50Pp = €71T = 25.8%
rp = %
3.Medium
WACC = 8.74%equity€4 000 000re​ = ?debt€2 000 000rd​ = 3%T = 25.8%

A company has equity worth €4 000 000 and debt worth €2 000 000. Its WACC is 8.74%, its pre-tax cost of debt is 3% and the tax rate is 25.8%. Find the cost of equity re.

E = €4 000 000D = €2 000 000WACC = 8.74%rd = 3%T = 25.8%
re = %
4.Medium
βr (%)SMLrf​ = 1%β = 1rm​ = ?β = 1.2re​ = 7%

A share with a beta of 1.2 has a required return of 7%. The risk-free rate is 1%. What expected market return rm does CAPM imply?

β = 1.2re = 7%rf = 1%
rm = %
5.Hard
WACC = ?equity4 000 000 × €9.00β = 0.8rf​ = 3.5%, rm​ = 9%debt40 000 × €960rd​ = 3%T = 20%

A company has 4 000 000 shares at €9.00 each and 40 000 bonds trading at €960 each. The pre-tax cost of debt is 3% and the tax rate is 20%. The share’s beta is 0.8, the risk-free rate 3.5% and the market return 9%. Find the WACC.

β = 0.8rf = 3.5%rm = 9%rd = 3%T = 20%
WACC = %
6.Hard
rf​ = 3.5%, rm​ − rf​ = 7%no debtequityβU​ = 0.9D/E = 1.5equityre​ = ?debtT = 30%

A company's business has an unlevered (asset) beta of 0.9. It plans a debt-to-equity ratio of 1.5. The tax rate is 30%, the risk-free rate is 3.5% and the market risk premium is 7%. Find the cost of equity re at the new capital structure.

βU = 0.9D/E = 1.5T = 30%rf = 3.5%rm − rf = 7%
re = %

Answer key

  1. 1. re = 6.5 %
  2. 2. rp = 7.746 %
  3. 3. re = 12 %
  4. 4. rm = 6 %
  5. 5. WACC = 5.061 %
  6. 6. re = 16.41 %

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